‘Falling Short’ Falls Short

It was on the New Arrivals table of a Barnes & Noble so maybe a lot more people are interested in the coming retirement crisis and what they can do about it but, if so, they will need to go beyond this synopsis which had some fun facts, dangerous presumptions, and this advice:

work longer, fix Social Security, save more through 401(k)s, and consider using home equity. (page 6)

Other excerpts:

Mutual benefit societies for survivor, sickness, and disability were traditional among unions, but the first union old-age plan (established by the Granite Cutters) did not appear until 1905. (page 12)

The Great Depression had a profound effect on both corporate and union plans. Of particular note, the railroad industry was operating in the red and did not have pension reserves to help pay benefits. Because so many people were involved in this major industry, Congress nationalized these plans. Many employees covered by other corporate and union plans were not so fortunate; these workers lost some or all of their anticipated benefits. (page 13)

Medicaid also helps the elderly because it pays for nursing home care for those who meet very strict income and asset tests. Medicaid covers almost 40 percent of all nursing home expenditures, as well as about 15 percent of home healthcare outlays. (page 21)

Medicare costs reflects rising healthcare costs generally, caused primarily by the introduction of new technologies and the wider use of existing ones.* (page 30)

Today, about 37 percent of households pay taxes on their [Social Security] benefits, and by 2030 that will increase to more than 50 percent. (page 43)

By law, Social Security cannot spend money it does not have. Therefore, in if nothing is done before the trust fund reserves are exhausted in 2033, Social Secuirty benefits would be cut by about 25 percent to match benefits going out with taxes coming in. (page 45)

In the end, it seems reasonable to conclude that about half of private sector workers participate in retirement plans.** (page 48)

By and large, those who continue to work beyond their mid-sixties should have a reasonably comfortable retirement. *** (page 69)

Monthly benefits for those who start claiming Social Security benefits at 70 are a full 76 percent higher than for those who start taking benefits at age 62. (page 69)

Two-thirds of college graduates have student loan debt, and the average debt is $29,400. (page 74)

Rolling over 401(k) balances into an IRA is definitely better than cashing out – because it at least keeps the money tax-sheltered – but it is not as good as leaving the money in the employer-sponsored plan, where participants are protected by fiduciary requirements and where a spotlight has now been focused on high management fees. **** (page 85)

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* Yet in other industries without de facto monopolies companies compete against each other to bring costs down. Maybe with healthcare costs a lot has to do with porous state oversight purchased by insurance companies that pay $600 million in premium taxes to states for $60 million in regulation that primarily has to do with being the insurers’ fraud detection arm (about the situation in New Jersey). Repeal McCarren-Ferguson and get competent federal regulation and see how that works on healthcare costs.

** A failing of this book is that it does not emphasize the level of benefits. With new comparability and cash balance plans there are many younger employees who are getting token accruals which they will probably blow when they cash out prior to age 59-1/2.

*** This was one of the book’s magic bullets (along with enhanced 401(k) automatic enrollment amounts and getting home equity loans) which recalls Steve Martin’s advice on becoming a millionaire and paying no taxes (first, get a million dollars) as the authors lay out their plan for a comfortable retirement (first, don’t retire).

**** There was a lot of money snuck out of 401(k) accounts before the 2012 DOL rules required disclosure but has that really stopped or is it now included in the fine print? And IRAs are still abusive as to fees?

According to census figures total employment in Union County is at 202,372. According to New Jersey pension records 20,878 of those jobs are in government. Theoretically then 10% of the members of the Union County Democratic Committee should also be working in government to be representative of the general population. It’s not even close. When […]